India should stand up with startups

The genesis of the NDA government’s ambitious plans to inculcate an entrepreneurial culture in India lies in the speech made by Prime Minister Narendra Modi’s Independence day speech, where he said:

“We want a startup network to be established in India. We are looking at systems for enabling start-ups. We must be number one in start-ups… Start-up India; Stand up India.”

In the days that followed, Mr Modi travelled to the hub of corporate innovation and start-up culture, Silicon Valley in California, where he met with CEO’s of companies like Facebook, Google and Microsoft. No doubt the learning from such meetings was instrumental in the final formulation of the Start-up India campaign, along with an action plan, which happened in January 2016.

Starting with 5 lakh schools to target 10 lakh children for innovation program

New schemes to provide Intellectual Property Rights (IPR) protection to start-ups and new firms

Let us look at what start-ups in India really need, and then at how the Start-up India campaign might be able to deliver on these needs.

Ease of doing business

Despite continuous efforts by successive governments, India’s rank on the ‘Ease of doing business’ index continues to languish below 120. Such an environment is not conducive to a start-up culture that thrives on taking an idea from concept to execution in quick time. This is where the Single Window Clearance system, as mentioned at (1) above will prove to be immensely helpful.

In addition to this, a committed effort by the government to eliminate red-tape and avoid the ‘inspection-raj’ regime of yesteryear (Points (7) and (5)) will go a long way toward improving India’s score on this index. Further, it will ensure Indian entrepreneurs prefer India as their primary place of business, which will further job creation and wealth creation within the country.

Funding

Even today, the majority of funding for Indian start-ups comes from outside India. This means the problem is two-fold:

Scarcity of capital in India

Higher probability of flight of capital if quick returns are not given to the foreign investor

It will be interesting to see how the Start-up India initiative deals with this matter. The formation of a corpus fund is definitely encouraging (Point (2) above), but so are the Tax exemptions (as mentioned in Point (6)). With the prospect of a tax holiday for three years from formation, it gives Indian entrepreneurs that much time to turn their ideas into revenue streams. Further, if the funding is from Indian sources, it will be better for the country, since profits will remain within India. In addition to this, the mobile app mentioned in Point (1) could also serve as an tool for information exchange between entrepreneurs and funding agencies.

Research and development

R & D has been an Achilles heel for Indian industry for a long time, since we have for long depended on foreign designs and innovations to sustain our manufacturing. The reduction in patent registration fees (Point (3) above) and for IPR protection (Point (10)) should help local innovators to protect and monetize their ideas. Further, it will assist knowledge-based companies to take root and expand in India, rather than having to seek foreign shores, as many currently do.

Lack of exit options

Restrictive labour laws and a complicated bankruptcy statute make it difficult for an Indian company to wind up even if it has long since stopped being profitable. As a result, funds, employees and management remain locked up in businesses that are no longer viable. By contrast, America’s flexible labour laws and easy access to exit options have meant the entrepreneurs are not afraid to fail, a risk-friendly approach that has served them very well over the years. A similar provision in India, by way of the modified bankruptcy code mentioned in Point (4) above would encourage start-ups to register and operate in India rather than opting for foreign shores.

Access to quality labour

Silicon Valley in California is extraordinary not just for the quality of entrepreneurs who have set up shop there, but also for the unprecedented access the region has to the best skilled workforce in the world. Engineers and scientists from around the world aspire to work there, giving the businesses of the Valley an abundance of talent to choose from.

Replicating that in India will always be a challenge due to the lower wages offered here, but an interesting initiative of the Start-up India scheme has been the proposal to educate children from a young age under the innovation programme (Point (9)). While the details on this are not yet very clear, it is to be hoped that this will involve not just vocational, but scientific training that will help these children become the high-quality workforce that a true start-up culture requires.

Finally, it should be remembered that Governments are at their best when they remember their role as a facilitator of the people and not as a ruler. India’s corporate culture has for too long been bogged down by over-regulation. Let us hope that through Start-up India, the innovative spirit of India is set free to rule the world!

Kunal is an ex-banker with a (largely self-proclaimed) flair for writing. He is an associate member of the Institute of Chartered Accountants of India and an MBA from Narsee Monjee Institute of Management Studies (NMIMS), Mumbai.

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